Canadian Dollar's Technical Outlook Against the US Dollar Adopts a New Complexion

- USD/CAD strengthening on ongoing NAFTA nerves and wider Dollar rally

- Pair expected to extend advance to first target at 1.3270

- NAFTA uncertainty weighing on CAD; little impact from BOC meeting

- BoC decision delivers little impact

USD/CAD is looking more bullish now after breaking out above a descending channel which has dictated behaviour since the pair peaked at the June highs. 

The exchange rate is expected to continue rising from the current spot value of 1.3180 to a conservative target of 1.3270.

The target is calculated by the using the normal method of taking the height of the channel and extrapolating it higher by 0.618, a number related to the golden ratio.

"The charts have quite suddenly a different complexion about them, with the USD reversing strongly from major support in the low 1.29 area last week and breaking above the ceiling of the Jul/Aug channel at 1.3110 as well as the Aug high at 1.3173 this morning," concurs Shaun Osborne, chief strategist at Scotiabank.  

A more ambitious target would be at the full length of the height of the channel (a) extrapolated higher from the break (b), which generates a target at 1.3365.

"Price action suggests that the USD is mustering for another, potentially significant, push higher (retest at least of the 1.3375/80 area)," says Osborne.

A lack of corroboration from daily and weekly oscillators, however, may leave the US Dollar prone to setbacks, says Osborne, although our own oscillators do not corroborate the view.

The pair lost ground marginally on Wednesday after the Bank of Canada (BOC) meeting but in comparison to most moves following central bank meetings the loss was barely noticeable.

The BOC decided to keep policy unchanged at the meeting. Concerns about the outcome of NAFTA trade talks have made the BOC cautious and prevented them from increasing interest rates as aggressively as they might have  given the economic data. This has weighed on the Canadian Dollar which is sensitive to interest rates to which it is positively correlated.

"The pair remains concerned about the NAFTA talks. They are resuming today and the chatter is the hope for a Friday completion.  Headlines will dominate. We saw in the UK Brexit headline today, the risk from a headline can be sudden and sharp. So take that risk into consideration in your trading. If it is not your cup of tea, stand aside,"  advises Greg Michalowski, analyst at Forexlive.com.

We would look for a break above the 1.3208 highs for confirmation of a move up to the next target at 1.3270.

Momentum, as measured by RSI, is not particularly strong  but it is strong enough to support a continuation higher.

A 'three white soldiers' Japanese candlestick pattern which formed after the August 28 lows provides supporting evidence that the trend has changed from down to up.

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